"That is by no means the death knell for the metaverse," says Alex Cravero, Regional Head of the Emerging Technology Group (UK, US & EMEA) at HSF. "We now see platforms branding themselves as 'a metaverse' and the interconnected utopia as a 'multiverse'. While conceptually this might detract from the grand vision of some futurists, it gives businesses the chance to engage with people over many more platforms, each with a different flavour." Even if that reconceptualisation avoids challenges with computing capability and the need for co-operation between competitors, technological interoperability remains an issue. Rather than consisting of just one technology, the metaverse relies on bringing together multiple technologies across the full spectrum of infrastructure, platforms and applications.
What the metaverse stands for is a virtual world where you have an ability to have a singular presence which moves from place to place."
Alex Cravero
ROSE-TINTED VR
While blockchain technology is a crucial part of the infrastructure underpinning the metaverse network, it is a combination of powerful 3D rendering engines and physical hardware that underlies the metaverse experience. The preferred choice is virtual reality (VR) as it is fully immersive – once your headset is on, the virtual world completely replaces your physical surroundings. Herein lies another frontier of technological development, and another major hurdle. “There are three main obstacles: interface, interface, interface!," notes Pablo García Mexía, Head of Digital Law at HSF Madrid: Are you going to be wearing bulky goggles for hours on end? It might be feasible for short bursts of time, but not the several hours needed to watch a concert or go to work.” Both Meta and Microsoft are investing heavily in making VR more user-friendly, but many still struggle with using headsets for more than brief periods of gaming or streaming. “We have a few different headsets in the office, and they all get a bit uncomfortable if worn for too long,” agrees Cravero. "That said, you soon forgive the issues when immersed in a virtual world full of all sorts of exciting experiences and content."
READ MORE +
Content is King
These experiences provide the core opportunity for most businesses. Supported by infrastructure like blockchain and enabled by spatial computing like VR, platforms provide environments in which large numbers of people can gather and interact, discovering and enjoying a wide variety of content. By dematerialising space, objects, and distance, experiences that might be scarce in the physical world become infinitely more abundant and accessible in the metaverse. Your ability to access a music concert in the physical world – and your experience when you get there – is limited by factors like location, cost and the number of tickets on sale. In the metaverse, content creators can sell unlimited tickets to virtual shows that are universally accessible, where everyone enjoys the best seat in the house. It is no surprise, then, that at one time the most expensive plot of virtual land in Decentraland – a 116-parcel lot sold for $2.4 million in 2021 – could be found in the platform's Fashion Street District. Real-world fashion giants have quickly opened digital stores, and the district hosted its first ever Metaverse Fashion Week in March 2022 which saw leading brands like Dolce & Gabbana and Tommy Hilfiger take to the virtual catwalk. Opportunities are not limited to retail businesses, however. "We are increasingly seeing banks, law firms and other traditional businesses move into the metaverse with a view to enhancing existing services and exploring entirely new ones," says Wilkinson. "ONE Sotheby's International Realty and Voxel Architects have even built the first 'MetaReal' property that combines a luxury mansion in Miami with its virtual counterpart in The Sandbox metaverse. Enhanced immersive experiences create more compelling narratives. Greater community engagement and gamification in novel contexts will also generate new business opportunities." This breadth of potential application is driving bullish predictions. In March, Citi estimated five billion people could be using the metaverse by the end of this decade, while CB Insights has predicted that the metaverse could be a $1 trillion market in that same timeframe. Forecasts like these set pulses racing, but many challenges remain.
New world, new risks?
Every application of technology comes with risks, though perhaps none more than a ubiquitous virtual universe. The metaverse is subject not only to those risks that exist in the many technologies it relies on, but to entirely new ones arising from the socio-economic evolution that underlies the concept. Businesses are left with a quandary: do the risks outweigh the opportunity? “Businesses will already be familiar with a number of the risks associated with the metaverse,” says Mexía. “Virtual worlds will generally be subject to many of the same issues we see in today's internet. The problem is the metaverse involves a large number of emerging technologies that are still being grappled with on a global scale by businesses, politicians and legislators, and there will only be more of that to come as we see more advanced technologies move into mainstream use in the future.” That problem is highlighted by technologies like blockchain. Since its advent in 2008, it has driven the decentralisation of traditional financial systems – termed DeFi – and provided us with new sources of value through tokenisation, the process of converting into digital tokens the rights of ownership or control in an asset. "Blockchain has given us the ability to claim ownership rights over digital assets, and a means to trade them frictionlessly with each other," notes Wilkinson. "It allows people to transact online in more streamlined ways, and on a peer-to-peer basis without the need for a central intermediary, which makes it a vital component of the metaverse economy." The impact of blockchain technology on our global financial systems has not gone unnoticed. Striking a balance between innovation and consumer protection has led to global policy makers taking wildly divergent approaches to regulating cryptoassets, from the adoption of Bitcoin as national currency in El Salvador to an outright ban in China. However, China has been progressing towards a digital renminbi, and may become the first major economy to launch an official central bank digital currency. Researchers at the Bank of England (BoE) highlighted in a 2022 blog post that "existing risks from cryptoassets may scale to have systemic financial stability consequences,” while acknowledging they are essential to an open and decentralised metaverse.
ENTER THE METAVERSE
THE CORPORATE PIONEERS
Does Europe need a "Law of the Metaverse"?
But significant strides are being made in resolving this issue. Blockchain technology provides the underlying payment infrastructure for many existing metaverse platforms. Whereas it would once have been impossible to move cryptoassets from one blockchain to another, the industry has now developed 'bridges' allowing their transfer and use across multiple blockchains. "Advancements like these are a positive force in the metaverse ecosystem," adds Cravero. "Improving interoperability between underlying technologies can help bypass issues of businesses not collaborating or adhering to common standards and give people an experience more akin to the physical world where personal items move with you from place to place."
The systemic risks posed by the metaverse are not limited to the financial systems being reshaped by blockchain technology. Artificial intelligence (AI) forms a core part of the underlying metaverse infrastructure. The sheer scale of social interactions and creator content sitting at the heart of this virtual universe makes the task of identifying and censoring malicious content all but impossible for the human workforce. Meta AI and other leaders in this space are investigating the use of self-supervised AI to do the job, which learns without human oversight or input. However, AI models are notoriously difficult to rid of biases that disproportionately target the content of particular demographics. Studies in 2019 found leading models were 1.5 times more likely to flag tweets written by African Americans as “offensive” compared to other tweets, while TikTok faced claims in 2021 their algorithm was supressing content from black creators. These overarching risks are far harder to address than the more defined, albeit evolving, risks of data protection and cyber security. They have to be constantly reassessed against a rapidly evolving and increasingly conflicting global landscape of new policies, laws and regulations. While by no means an insurmountable task, there can be no doubt those looking to capitalise on the metaverse need to take steps not just to monitor and address the risks of today, but to plan for those on the horizon as well.
The wheel turns
According to Susannah Wilkinson, Regional Head of Emerging Technology (APAC)) at Herbert Smith Freehills (HSF): “The metaverse advances how people experience online interactions, and the scope of those interactions, thanks to improvements in user interface hardware and developments in Web3 technologies like blockchain.” These advancements open the door to a wealth of new business opportunities, and not just for companies like Meta, Microsoft and Nvidia who are building metaverse-related technologies. Banking and consumer businesses are seeing fledgling platforms like Decentraland as opportunities to engage with younger generations, while real estate businesses (and Snoop Dogg) are buying plots of virtual land. The reality, though, is a single unified metaverse is a long way off, if it ever materialises at all. That is partly down to technical limitations; it would require a thousand-fold increase in current computing capability, according to Intel, and there are ongoing challenges with technological interoperability. But mostly it is a matter of business logic. Competitors are simply not motivated to connect their products to each other to create one universal network.
READ LESS +
Facebook (Meta): in a bid to expand beyond its core social media business, the US company in October 2021 changed its corporate name to Meta and unveiled plans to recruit 10,000 staff to develop its metaverse. Microsoft: in January 2022, the software giant acquired computer games business Activision Blizzard for $68.7bn in a move widely viewed as a metaverse play, and has been investing heavily in making virtual reality (VR) cheaper and more accessible. JPMorgan Chase: The US banking giant opened its Onyx Lounge in the Decentraland metaverse platform in 2022, allowing it to operate a branch in the virtual world, alongside publishing a paper on the metaverse noting that "opportunities presented by interactive, digital worlds seem limitless." Samsung: In January opened Samsung 837X, an immersive virtual world modelled on the company's Samsung 837 flagship New York store, with the company describing the experience as "a journey where technology joins art, fashion, music and sustainability." Coca-Cola: launched over 4000 digital collectibles on the metaverse since 2021, owners of which can enjoy real-life perks and experiences sponsored by Coke Studio and early access to new Coca-Cola products launched by Coca-Cola Creations. Selfridges: teamed up with Paco Rabanne and Fondation Vasarely to open its first department store in the metaverse, which used NFTs to inform visitors about key events and projects in Selfridges' history. Fortnite x Balenciaga: In 2021, Epic games launched a series of in-game Balenciaga apparel for video game characters in Fortnite, made using 3D scans of real-life garments. Balenciaga launched accompanying Fortnite x Balenciaga merchandise in the physical world. Nike: opened a virtual store – Nikeland – in the metaverse, and in January 2022 claimed to have received just under 7 million visitors in less than six months. Also acquired RTFKT, a virtual goods company that specializes in creating digital sneakers. Hyundai: launched "Hyundai Mobility Adventure" in the metaverse in 2021, which aims to familiarise young and tech-savvy consumers with Hyundai's futuristic concept vehicles and hydrogen fuel-cell technology. Ferrari: launched a digital model of the real-life Ferrari 296 GTB in the metaverse in 2021, as well as signing a multi-year deal with Swiss tech company Velas to create NFTs for its metaverse audience. Government of Indonesia: in 2022, state-owned telecommunications company PT Telkom Indonesia launched its own metaverse "metaNesia" with a view to helping small businesses compete against international technology giants.
Alex Cravero in the metaverse VIA DECENTRALAND
Susannah Wilkinson, Regional Head, Emerging Technology (APAC)
Jaded observers dismiss it as marketing, little more than an evocative buzzword to lure investors. The initiated say it is our shared digital future: a virtual world of abundant possibilities that exists in parallel to our physical world. Most find themselves in the middle – unsure, confused… or awaiting an explanation. Welcome to the metaverse! Surrounded by a strikingly utopian sales pitch, making sense of concept and understanding practical realities of the metaverse can be hard. To begin with, there are so many definitions floating around, each seem to differ in subtle yet fundamental ways. In essence, the metaverse is generally characterised as a growing 3D virtual universe where you can spend your digital life as an avatar - working, playing, shopping or just hanging out. This vision of a borderless digital realm is not new; the metaverse takes its name from the 1992 science fiction novel Snow Crash by Neal Stephenson, whose idea of a single virtual world was further popularised in the book and film Ready Player One. But most agree Facebook's 2021 rebrand as Meta and commitment to hire 10,000 people to develop the concept is the major source of fuel for today's metaverse fire. That is not to say everyone is convinced by the concept. Serial tech entrepreneur and Tesla chief, Elon Musk, has poured cold water on the metaverse, labelling it nothing more than “marketing”. But many see it as the natural evolution of established and emerging technologies.
ALEX CRAVERO, Regional Head, Emerging Technology Group (UK, US & EMEA)
CAN IP RIGHTS PROTECT BRANDS AND PRODUCTS IN THE METAVERSE?
© Herbert Smith Freehills 2022 Modern Slavery and Human Trafficking Statement | Accessibility | Legal and Regulatory | Privacy Policy | Report Fraud | Whistleblowing
In the first of our TechQuake series exploring high-impact technologies, we ask how seriously the business world should take the metaverse
There is a long road ahead for the metaverse, but there are numerous examples of enterprising businesses who are already reaping the benefits. Yuga Labs, the creators of famed Bored Ape Yacht Club non-fungible tokens (NFT), generated around $300 million earlier this year by selling NFT ‘deeds’ for up to 55,000 plots of virtual land in Otherside, their upcoming metaverse platform. Dolce & Gabbana similarly turned to NFTs to sell a separate nine-look collection of clothing and accessories, four of which were only in the metaverse, the rest of which included a real-world garment, for a total of $5.7 million. "For many businesses, it is simply a case of dipping a toe in early - testing the water and learning from experience rather than relying on speculation," says Cravero. "This helps inform their longer-term strategies not just for the metaverse, but for the individual technologies it comprises as well. And it puts those businesses in prime position to evolve if – or when – the time comes." So, what is the metaverse? An evocative branding opportunity? Absolutely. Airless slogan? Certainly not. While we wait to see whether it stays true to its Panglossian pitch, at least for now the concept encapsulates how billions of people will live more of their lives – and spend money – in the virtual realm. And business is sure to follow.
THE NEW FRONTIER
Many possibilities, many challenges – Applying law in the Metaverse
WHAT IS THE METAVERSE? +
GET HSF INSIGHTS DIRECT TO YOUR INBOX
SUBSCRIBE +
Immersive experiences create more compelling narratives. Greater community engagement and gamification in novel contexts will also generate new business opportunities."
Susannah Wilkinson, Digital Law Lead (Australia & Asia)
For many businesses, it's a case of dipping a toe in early and learning rather than relying on speculation. This helps inform long-term strategies not just for the metaverse, but for the technologies it comprises and puts those businesses in prime position to evolve if the time comes.
ALEX CRAVERO, Digital Law Lead (UK/US & EMEA)
TECHQUAKE
Other platforms and tools that support engagement with virtual worlds
Payments and monetisation tools to enable the metaverse economy, including crypto exchanges, crypto wallets, NFT marketplaces and non-crypto payments
Security and identity governance
Digital identity and avatar management
EXPERIENCES: users participate in activities across sectors including gaming (AR/VR, decentralised, esports), retail (fashion, shopping), entertainment (social, theatre, concerts), banking (customer services, branches), real estate (agents, brokers), virtual work and others
What you do in virtual worlds
CONTENT: delivers and enriches experiences to users, including first party, developer, creator and other content such as avatars (digital identity)
DISCOVERY: helps users to find content and experiences, including ad networks, curation, social and stores
CREATOR ECONOMY: enables creators to make and monetise content, including design tools, asset marketplaces, workflow tools and commerce
HUMAN INTERFACE: hardware that helps individuals access the metaverse, including headsets (VR), smart glasses (AR), holographics and haptics
SPATIAL COMPUTING: software that makes objects three dimensional and allows interaction with them, including 3D design engines, 3D modelling and capture (including geospatial mapping), AR development kits, avatar development and volumetric video
How you access and interact with virtual worlds
INFRASTRUCTURE: foundation technologies which power the metaverse, including chips and processors (including MEMs and GPUs), 5G and low latency networks, cloud infrastructure and payments infrastructure
DECENTRALISATION: distributes the ecosystem and underpins the metaverse economy, including blockchain (crypto, NFTs), edge computing and microservices
What virtual worlds run on
BACK TO ARTICLE
Many possibilities, many challenges – Applying law in the Metaverse +
What makes up the metaverseInfrastructure, platforms, applications & experiences, and tools that support engagement with virtual worlds.
The Sandbox, Decentraland
Decentralised
Infrastructure, platforms, applications, experiences and tools that support engagement with virtual worlds.
What virtual worlds are made of
Many of the legal and regulatory issues in the metaverse will resemble those seen on the internet today. But if that sounds reassuringly clear, this emerging frontier creates a raft of additional challenges
The ability to legally own virtual items, like the clothes your avatar wears or the house it lives in, is central to the metaverse. It allows you to enjoy exclusive possession or control over them, which provides their scarcity and value. While technologies like non-fungible tokens (NFTs) provide the technical means to show exclusive possession, the age-old legal concept of 'ownership' (or property) has not yet caught up and in many jurisdictions the legal status of digital assets is still being tested. Enforcing your rights may mean turning to the courts or arbitral tribunals, but this remains an area of law that will continue to evolve. Thinking about how disputes will be resolved and by whom (inside and outside the metaverse) is important when venturing into this new virtual world.
PABLO GARCÍA MEXÍA, HEAD OF DIGITAL LAW - MADRID
digital assets
Blockchain technology is a key component of the metaverse ecosystem, where transactions often involve the use of cryptocurrencies. These activities may be subject to established (and evolving) financial service regulations, which in many cases has not yet caught up with the operation of virtual worlds. Financial institutions operating in the metaverse will need to ensure they have appropriate systems and controls which are adapted to the virtual world. The risk of being misused for financial crime may be higher, for example, given the use of digital identities like avatars and digital wallets containing cryptocurrencies. These additional risk considerations must be factored into any technology build, and users might want to keep their passports handy.
Financial regulation
The volume and sensitivity of the data that is collected and used in the metaverse make it vital that appropriate data security measures are implemented. Inadequate technical or organisational measures may result in malicious actors gaining access to users' personal data or payment information, or may make businesses susceptible to debilitating ransomware attacks. These risks highlight the need to ensure robust cybersecurity measures are in place throughout the full chain of metaverse actors, and that security settings are appropriately configured.
Data security
The variety of technologies involved, together with the increased depth of interaction between users and their virtual environments, deeper profiling and the sharing of multiple data sets between metaverse platforms, means large volumes of personal data will be generated and used in the metaverse. Complex chains of data controllers and processors may collect personal data ranging from basic identifiers to sensitive biometrics like eye movements and brainwave patterns. Understanding the role (s) and responsibilities of each actor in the ecosystem and respecting the data privacy rights of users are key to cross-border data privacy compliance. Compliance can be particularly challenging in practice, for example in respect of rights of rectification or erasure due to the immutable nature of blockchain technology that powers the metaverse economy. Traditional transparency and user consent mechanisms also have potential to significantly compromise the user experience and can become impractical in the metaverse, as can the usual means by which users exercise their data privacy rights.
DATA PRIVACY
Beyond the impact that the increasing interlinkage between personal and professional lives has on employee wellbeing and mental health, the increased use of virtual worlds provides new and different opportunities for behaviour inconsistent with employers on standards of conduct, including codes on diversity and inclusion. Reports of inappropriate conduct using avatars are already plaguing some platforms. In the same way as remote and hybrid working presented new challenges in dealing with allegations of bullying, harassment and discrimination, employers may need to adapt internal rules and processes to address issues of workplace behaviour. This could include regulating the likeness of any avatar to the user it represents, matters relating to the way in which they communicate with other users or even access by employees to certain areas of the digital universe or metaverse platforms. Additionally, surveillance in the metaverse (whether to investigate or prevent misconduct or merely eye-tracking tools inherent in virtual-reality headsets) raises further complications for employers.
Employment
Immersive virtual worlds provide many novel opportunities to advertise content to users and further establish brand presence, but in doing so advertisers must follow rules set out by regulatory bodies, including those of fairness and transparency (for example, advertisers must be obviously identifiable as such). As in the physical world, additional requirements may apply to the marketing of financial products and services, as well as cryptoassets whether or not they fall within the regulatory perimeter. This may be more straight forward when displaying traditional adverts in a manner similar to those in the physical world, but requires more innovative solutions not to hinder the user experience if the distinction between entertainment content and advertising becomes less clear in the metaverse. The rise of virtual influencers as tailored brand ambassadors also presents a range of other new evolving challenges for organisations, including regarding other areas of regulation engaged, for example, e-commerce, data protection (given the widespread personalised advertising) and online harms or specific industries or sectors (such as gambling).
Advertising
Users need to be particularly considerate of the rights they acquire in tokenised assets like NFTs. These will depend on the terms underlying the NFT and users will not usually 'own' the intellectual property rights in those assets. Detection and enforcement of infringement by rights holders may be hampered by the sheer scale of the metaverse, particularly for owners of popular brands who may find users generate content referencing their trade marks on a large scale. In some contexts this might be of assistance in promoting a brand but ultimately rights owners will want control over use in the metaverse and this may come down to whether current registrations are held to apply to this new medium. Intellectual property offices across the world are considering this currently.
INTELLECTUAL PROPERTY
The central role of interoperability, in the metaverse is driving a need for technical standards. Agreeing these can give rise to antitrust issues, especially if sharing strategic information, despite antitrust law generally allowing businesses to collaborate on pro-competitive technical standards. Standardisation agreements that are adopted in an open and transparent manner and provide access to the standard on FRAND terms are less likely to restrict competition. Regulators will also be looking to balance incentives for investment and innovation against the risk of tipping markets resulting in super dominant market players. In addition to interoperability focus here will be on issues such as exclusivity requirements, self-preferencing, bundling and collection and aggregation of data.
ANTITRUST
As with the physical world, disputes in the metaverse may arise in various contexts. Many 'traditional' disputes will arise in relation to the underlying digital infrastructure on which the metaverse depends and its ownership and governance. Users may also bring claims against platforms or other providers for perceived harms suffered in using the metaverse. However, more novel disputes will also arise within the metaverse, as users bring claims against each other, for example in respect of transactions. The nature of these disputes may challenge traditional resolution methods, lead to an increase in online dispute resolution. However, thorny legal issues arise around applicable law, jurisdiction and competent authorities to enforce any decisions on a peer-to-peer basis, particularly cross-border. An increasing number of entities enabling the metaverse are distributed autonomous organisations (DAOs) governed by token holders which have unclear legal status in many jurisdictions, which adds to that complexity.
Disputes and enforcement
The ability for people physically located in different countries to interact seamlessly in the metaverse gives rise to a complex issue of which jurisdictions are entitled to tax digital transactions in virtual worlds. It can also be difficult to characterise such transactions for tax purposes, and to apply existing tax concepts to determine which specific taxes should apply to a transaction. Common tax frameworks, such as that being developed for cryptocurrencies by the OECD, may address some of these difficulties. But until consensus among jurisdictions can be achieved, individual countries may adopt divergent tax positions, leading to complexity and uncertainty for multinational organisations operating in the metaverse.
TAX
Games of chance that reward users with prizes are commonplace in the metaverse. In many games, for example, users can pay directly or indirectly to open a loot box (a type of treasure chest) which rewards the user with a random selection of virtual items such as clothing for their avatar. Gambling-style opportunities like these have started to attract significant scrutiny in some jurisdictions, and regulators are considering whether these may be a form of gambling under applicable laws (in part depending on whether there is a monetary value or active secondary markets for the in-game rewards outside the game). Where activities are regulated under gambling legislation they may require the person operating the activity to first obtain regulatory licences or approvals, and/or adhere to certain restrictions including those to protect children and other vulnerable persons. Contravention of certain of these laws can be a criminal offence.
Gambling and gaming
Virtual worlds will be subject to many of the same issues we see in today's internet. The problem is the metaverse involves emerging technologies that are still being grappled with on a global scale by businesses and politicians and there will only be more of that to come as we see more advanced tech move into mainstream".
HOME
With 30 years' experience forging a legal framework for the digital sphere, the novel challenges of this new frontier are considerable but manageable
Much has been said about the metaverse as a set of technologies – including virtual reality, augmented reality and 3D games – that connect applications, objects and infrastructure and offers compelling immersive experiences. While not everyone is convinced of its potential, many supporters see the metaverse foreshadowing a giant leap forward for the online sphere, an internet 3.0. And where business moves, law must provide certainty; discussions on how to address the legal challenges peculiar to this new technological frontier are under way. The good news is there is already a substantial body of digital law developed in Europe over the last 30 years that can be drawn upon. That is firstly because, until interoperability makes it possible to establish direct relations among users without the need for intermediaries (such as blockchain), the law of the metaverse will resemble digital law. That legal framework is primarily based on the liability that intermediaries bear for third parties' use of their platforms, within the EU under Directive 2000/31. Secondly, confidence can be drawn from the reality that many of the issues identified as inherent to the metaverse are largely rooted to the underlying technologies employed within it. The best example of this is NFTs (non-fungible tokens), which use blockchain technology. If, for example, intellectual property (IP) conflicts are triggered as a result of a specific NFT operating without a licence from the IP owner, that legal issue remains at the level of the blockchain, not the metaverse, irrespective of an NFT operating also in the metaverse. The third point to remember is that, because the metaverse is, ultimately, an evolutionary development of the internet, a considerable number of challenges have already been tackled. A primary issue here is the need to extend legal provisions created for the offline world to an online environment, a challenge that has been resolved by legal reform that has meant those provisions becoming neutral from the perspective of digital technology (for example, EU financial regulation, which already tackles both offline and online situations). The main caveat, of course, is that, as the metaverse is still in its infancy, the law and market practice will take some time to fully catch up in practical application. Ultimately, as occurred in the early years of the internet, it would seem desirable to apply relevant legal provisions initially devised for different scenarios. For example, to what extent would gambling in the metaverse not be covered by current Article 1 of the Spanish Gambling Act, which – just like so many of its counterparts across Europe – also envisages the performance of gambling activities “over electronic, computer, telematic and interactive channels”? For companies looking for an immediate presence in this new environment, the final message is clear: given almost 30 years of experience developing legal frameworks for the internet and digital arena, current legal provisions will enable us to address many of the issues in the metaverse with reasonable confidence. The time when the internet resembled a legal Wild West is now long past – that leaves the metaverse positioned, in Europe at least, as far removed from lawlessness.
Based on the article "El 'Derecho del metaverso' y el arranque de Internet 3.0", published in Spanish on Spain's Cinco Días newspaper on 05 July 2022.
Confidence can be drawn from the reality that many of the issues identified as inherent to the metaverse are largely rooted to the underlying technologies employed within it"
The advent of the metaverse provides a new environment for products and services to be advertised and consumed. One of the pressing questions is whether traditional IP rights are fit for purpose in this new digital frontier
The advent of the metaverse provides a new environment for products and services to be advertised and consumed. One of the pressing questions is whether traditional IP rights are fit for purpose in this new digital frontier. For example, will the trade marks registered for your brand be enforceable against virtual use? Do the NFTs you've purchased (or sold) allow copying or dealing in the underlying works, or use in the digital and/or 'real' world? What is fair use as opposed to infringing use, and how can this be policed?
Will brand protection be possible using traditional trade mark registrations?
The EUIPO has recently issued guidance notes in relation to trade marks and NFTs entitled "Virtual goods, non-fungible tokens and the metaverse", which clarifies the approach that it is taking for applications containing terms relating to virtual goods and NFTs. The note suggests that new classifications for trade marks may be needed for virtual use, such as the term "downloadable digital files authenticated by non-fungible tokens" in Class 9, while the term "non-fungible token" on its own is not acceptable, it must be clearly specified.
Brands will need to consider the potential damage to their reputation of any unauthorised use in the metaverse. The digital world lowers the barriers to copying and imitation, and brands will have to remain vigilant to ensure that products and services are not being offered – in their original or even amended version - without their consent. In addition to trade marks, copyright and design rights could be invoked to protect consumer products. However, the jurisdiction in which an enforcement action can be brought may also be an issue.
Brand image in the metaverse
If brands are thinking about entering the metaverse (as many already have), or promoting and selling NFTs, the terms under which any proprietary content is licensed or sold needs to be carefully considered, as these will determine the extent to which the content can be used in the metaverse and the real world. In either case, content owners will need to police the metaverse to identify where their content may be being used without permission, in particular where they may seek to use it for their own NFT portfolio in future. Enforcement may be problematic if the agent providing the NFT is not identifiable or blockchains prevent further identification of sources. To read more about NFTs in particular, see our briefing The IP in NFTs – Strategies for protecting your brands and products in the metaverse.
PROTECTION OF IP THROUGH LICENSING
In terms of dealing in crypto assets and NFTs, the Law Commission of England and Wales has recently recommended law reform to recognise a third category of personal property – referred to as ‘data objects’ – to deal with digital assets such as NFTs, in addition to things in possession (such as physical objects) and things in action (such as contractual rights). The paper acknowledges the flexibility of English law to accommodate digital assets within existing legal principles but recommends reform to ensure ‘data objects’ are treated consistently under English law and promote greater legal certainty. For a more detailed review of the consultation paper (which is open for responses until 4 November 2022), and court decisions in the UK which have considered cryptocurrencies and NFTs, see our blog post here.
NFTs – a new legal form of property needed?
George McCubbin SENIOR ASSOCIATE (AUSTRALIA), LONDON
If brands are thinking about entering the metaverse (as many already have), or promoting and selling NFTs, the terms under which any proprietary content is licensed or sold need to be carefully considered"
Giulia Maienza ASSOCIATE, MILAN
Rachel Montagnon Professional support consultant, London
Andrew Moir GLOBAL HEAD GLOBAL HEAD OF CYBER & DATA SECURITY, LONDON
A world like our own – Workplace challenges in the metaverse
For technology enthusiasts, the advent of the metaverse – an expanding 3D virtual universe where you experience a digital life as an avatar – appears to mark the next big step in the internet's development. However, in the employment sphere, an evolution and expansion of existing legal principles is more likely than a complete overhaul of the status quo. Below we consider some key areas where existing employment law concepts may find interesting new expressions in this emerging virtual world and explore how employers can protect themselves and their staff.
Harassment and discrimination in virtual spaces
2
In the event of harassment or discrimination, what must an employer do to show it had taken reasonable steps to prevent wrong-doing? Expectations about respect and tolerance between employees should remain the same regardless of whether new interfaces or means of communication are used. Existing policies governing conduct should apply also to interactions in any virtual workspaces, albeit with any necessary amendments, and the need for implementation and training on such policies should remain largely the same. Employers may also consider regulating which parts of the digital universe an employee can access, akin to the use of safe search and other filters currently deployed to regulate internet usage in the workplace. It is conceivable an employee would wish to use the same avatar in a virtual workplace and outside of working hours. As with existing social media policies, companies looking to use virtual workspaces should consider how extra-curricular activities carried out by avatars who can be identified as employees of an organisation might reflect on the reputation of their business, and how these risks may be managed. In the current iteration of the internet, platforms are typically monitored and regulated by moderators who review and, if appropriate, remove content and users. Often this only happens reactively once discrimination or harassment has occurred and requires the victim to come forward with a complaint. The development of the metaverse presents a potential opportunity for a more proactive approach to addressing discrimination and harassment. This raises the question as to whether employers should require more of the digital universe currently under construction and those service providers looking to build virtual workplaces. Following the complaints of inappropriate conduct mentioned above, in February 2022 Meta introduced a "Personal Boundary" feature in its Horizon Worlds online virtual reality videogame, which created a two-foot virtual bubble around individual avatars. In a similar way, minimum standards of behaviour could be coded directly into virtual workspaces so that avatars are prevented from using certain language or other conduct breaching an employer's policies.
Coding for conduct
The metaverse presents opportunities for employers to provide a virtual workplace where employees can meet and interact – the next evolutionary stage in remote and hybrid working. However, it can also bring challenges for employers, over and above the liability risk for the actions of staff or other individuals. In a virtual workplace, the appearance of an avatar depends on the characteristics chosen by its real-life counterpart. A failure of a service provider to include a representative array of skin tones or hairstyle options may acutely impact some employees' ability to create an avatar that they consider accurately represents them. There is also a question as to whether requiring employees to use the metaverse for work would itself cause a disadvantage for those employees who would find it more difficult to engage in a digital workspace. Employers should require their service providers to consider reasonable adjustments that might need to be made for disabled employees – progress in the world of videogame development illustrates ways in which this is possible in terms of both hardware and software. Finally, use of the metaverse presents challenges for employers from a privacy perspective because eye-tracking tools within headsets unavoidably collect biometric data. This surveillance is necessary to allow employees to engage in the metaverse, but consent to the collection of this data can only freely be given if individuals have a genuine choice in whether to use the technology – similar to the situation with facial recognition technology to log on to a laptop or the use of fingerprints to enable access to premises. It is far from necessary at this stage to require employees to use a virtual workplace. In any event, relying on employees' consent to collect this data is problematic because of the power imbalance in the employment relationship. Additionally, eye movements and other physical motions can also result in the collection of significant data, some of which is very sensitive, such as health data. Eye and gaze tracking can reveal a great deal about the subject at a subconscious level – for example, pupil dilation can reveal areas of focus or intensity of interest. Gaze tracking can also reveal underlying neurological or behavioural patterns, and in some circumstances may be able to uniquely identify individuals. Information about preferences or time spent in activities may be less sensitive than underlying health data or biometric data but is nonetheless extremely valuable to advertisers and therefore vulnerable to collection. Employers need to be alive to this and consider the impact on their obligations as data controllers in this digital universe.
KEY CONTACTS
1 Discrimination is defined under the EqA as someone being treated less favourably than someone else because of a protected characteristic. The protected characteristics are Age; Disability; Gender Reassignment; Marriage and Civil Partnership; Race; Religion or Belief; Sex; Sexual Orientation; and Pregnancy and Maternity. 2 Harassment is defined under the EqA as unwanted conduct which relates to a protected characteristic, and which has the purpose or effect of violating the victim's dignity or creating a harmful environment for them.
JOSHUA PETERS Associate, London
Employment tribunals are unlikely to be sympathetic to arguments that metaverse issues are only confined to digital spaces and experienced by avatars."
SIAN MCKINLEY SENIOR ASSOCIATE, LONDON
JAMILLA WYNTER GRADUATE SOLICITOR (AUSTRALIA), London
The law on harassment, discrimination and privacy of workers is well established online and in the office. But applying these rules in the metaverse will still raise some novel risks and challenges
As a general rule, employers are liable for the discriminatory actions of their staff towards colleagues unless they can show they took all reasonable steps to prevent the act from occurring. The nascent metaverse has already been plagued by allegations of e-groping and other inappropriate conduct. In any virtual context, this behaviour is both clearly unpleasant for the user affected and poses problems for employers seeking to utilise digital spaces. Employers should consider whether harassment of a worker's online avatar could amount to actionable harassment in the real world for which the company could be liable. To suffer a "detriment" under the Equality Act 2010 (the EqA), it is enough for the individual to have a reasonable sense of grievance about the treatment they received. Employment tribunals are unlikely to be sympathetic to arguments that metaverse issues are only confined to digital spaces and experienced by avatars. As such, it would be surprising if interactions in the metaverse were not treated as merely another form of online communication and interaction with tangible effects on persons in the real world. Indeed, under the EqA, it is the effect, and not the means of delivery, that is often most important – for instance, the EqA definition of sexual harassment does not require physical contact, only "unwanted conduct". In the metaverse, where the appearance of an avatar can be selected by a user, must the avatar and individual share characteristics to be able to complain about poor treatment? Not necessarily. Under the EqA, direct discrimination and harassment can occur in respect of a "perceived" characteristic, which means an individual does not need to have a protected characteristic to have suffered actionable discrimination or harassment. It is sufficient for the perpetrator to simply perceive the victim as having the relevant characteristic. In fact, employment tribunals have made findings of discrimination in this context even where the perpetrator was fully aware the victim did not possess the protected characteristic. In short: the use of avatars in the workplace potentially widens the scope for discrimination by perception to occur, even where employees know their colleagues' avatars differ from their physical selves.
1
The blackholes of the metaverse – Disadvantage and data
Following complaints of inappropriate conduct, Meta this year introduced a Personal Boundary feature in its Horizon Worlds videogame, which created a two-foot virtual bubble around individual avatars."
METAVERSE
Everything you wanted to know about the metaverse (but were afraid to ask)
In the first of our Tech Quake series exploring disruptive technologies, we ask how seriously the business world should take the metaverse
According to Susannah Wilkinson, Digital Law Lead of the Emerging Technology Group at Herbert Smith Freehills (HSF): “The metaverse advances how people experience online interactions, and the scope of those interactions, thanks to improvements in user interface hardware and developments in Web3 technologies like blockchain.” These advancements open the door to a wealth of new business opportunities, and not just for companies like Meta, Microsoft and Nvidia who are building metaverse-related technologies. Banking and consumer businesses are seeing fledgling platforms like Decentraland as opportunities to engage with younger generations, while real estate businesses (and Snoop Dogg) are buying plots of virtual land. The reality, though, is a single unified metaverse is a long way off, if it ever materialises at all. That is partly down to technical limitations; it would require a thousand-fold increase in current computing capability, according to Intel, and there are ongoing challenges with technological interoperability. But mostly it is a matter of business logic. Competitors are simply not motivated to connect their products to each other to create one universal network.
...the metaverse in many respects is a natural evolution of established and world-changing platforms and technologies like the internet, social media and smartphones."
Jaded observers dismiss it as marketing, little more than an evocative buzzword to lure investors. The initiated say it is our shared digital future: a virtual world of abundant possibilities that exists in parallel to our physical world. Most find themselves in the middle ¬– unsure, confused… or awaiting an explanation. Welcome to the metaverse! Surrounded by a strikingly utopian sales pitch, making sense of concept and understanding practical realities of the metaverse can be hard. To begin with, there are so many definitions floating around, each seem to differ in subtle yet fundamental ways. In essence, the metaverse is generally characterised as a growing 3D virtual universe where you can spend your digital life as an avatar - working, playing, shopping, or just hanging out. This vision of a borderless digital realm is not new; the metaverse takes its name from the 1992 science fiction novel Snow Crash by Neal Stephenson, whose idea of a single virtual world was further popularised in the book and film Ready Player One. But most agree Facebook's 2021 rebrand as Meta and commitment to hire 10,000 people to develop the concept is the major source of fuel for today's metaverse fire. That is not to say everyone is convinced by the concept. Serial tech entrepreneur and Tesla chief, Elon Musk, has poured cold water on the metaverse, labelling it nothing more than “marketing”. But many see it as the natural evolution of established and emerging technologies.
Lorem ipsum dolor sit amet, consectetur adipiscing elit. Proin auctor quam non dui dapibus consequat. Sed lacinia velit lectus, id finibus lacus dapibus ac. Praesent hendrerit maximus lobortis. Aliquam posuere dui quis purus rutrum, vel condimentum nunc accumsan. Vivamus vel fringilla lectus. Curabitur congue odio vel libero tempor, sed hendrerit nibh dignissim. Nullam posuere magna eget mi condimentum rhoncus. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Proin auctor quam non dui dapibus consequat. Sed lacinia velit lectus, id finibus lacus dapibus ac. Praesent hendrerit maximus lobortis.
NEW WORLD, NEW RISKS?
THE WHEEL TURNS
Q&A 1
Q&A 2
FACEBOOK
HSBC
